MEMORANDUM OF ASSOCIATION AND OBJECTS OF A COMPANY

The Company’s Memorandum of association represents its charter as it defines the objects for which it has been setup. In Cotman Vs. Brougham (1918)AC 514, it was observed that “the purpose of memorandum is to enable the shareholders, creditors and those dealing with the company to know what is its permitted range of enterprise”.

The Memorandum of association sets out the boundaries beyond which the company cannot traverse. Any action of a company which is beyond the memorandum is ultra virus and void and incapable of being ratified. Where there is no connection or nexus between the power exercised and the attainment of an object, the exercise of such power shall be deemed to be ultra virus.

Section 4(1) of the Companies Act 2013  provides the relevant information that a Memorandum of association shall provide, which includes, in sub-clause (a) the name of the company; in sub-clause (b) the State in which the registered office of the company is to be situated; in sub-Clause (c),the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof; in sub-Clause (d) the liability of members of the company, in sub-Clause (e ) capital of the company.

As per Companies Act, 2013, the main objects of the company need to be specified separately. In additional objects which are ancillary and are considered necessary to further main objects need to be stated.

Section 10(1) of Companies Act, 2013 elucidates the legal effect of an MOA in the following terms:

“10. Effect of memorandum and articles.—(1) Subject to the provisions of this Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.”

Further, Section 13 of Companies Act, 2013 provides the requirements for the alteration of a Memorandum of association. The relevant parts of Section 13 in regard to alteration of object clause in the Memorandum of association of a company are as follows:

“13. Alteration of memorandum.—(1) Save as provided in Section 61, a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum.

[…]

(6) Save as provided in Section 64, a company shall, in relation to any alteration of its memorandum, file with the Registrar—

(a) the special resolution passed by the company under sub-section (1);

(b) the approval of the Central Government under sub-section (2), if the alteration involves any change in the name of the company.

[…]

(9) The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution in accordance with clause (a) of sub-section (6) of this section.

(10) No alteration made under this section shall have any effect until it has been registered in accordance with the provisions of this section.

[…]”

Thus, for the alteration of the Memorandum of association of a company in relation to its objects, a Special Resolution has to be first passed under Section 13(1). It then has to be filed with the Registrar in accordance with Section 13(6)(a). Further, under Section 13(9), when the alteration is made to the objects in the MOA, the Registrar shall register it and certify it within a period of thirty days from the filing of the Special Resolution in accordance with Section 13(6)(a). Finally, Section 13(10) provides that no alteration made under the Section shall have effect unless it is registered in accordance with the provisions of the Section.

Recently in the matter of M/s Consolidated Construction Consortium Limited Versus M/s Hitro Energy Solutions Private Limited Civil Appeal No. 2839 of 2020 Supreme court of  India also took note that section 4(1)(c) speaks about the objects for which the company is proposed to be incorporated. This implies that the company contemplates to pursue its objects either immediately after incorporation or within a reasonable period of time. It is the duty of the registrar to verify whether the objects included in the draft memorandum are indeed the ones which the company proposes to pursue upon incorporation. He should satisfy himself on this score by verifying the documents/ information provided by the company.

The object clause in a Memorandum of association is considered to be representative of the purpose of a company and it is expected that the company will fulfill/attempt to fulfill the objects it has laid out in its MOA.

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